We also would have accepted, “Why oh why can’t we have better Keynesian bloggers?!”
This isn’t worth me writing up in another outlet, but I know some of you like this petty stuff… (I sure do.)
==> Some of you may remember that Krussell and Smith wrote up a Note on Piketty, explaining why his model was unorthodox because it used net rather than gross figures, making it yield odd outcomes and further being difficult to reconcile with actual savings behavior. To illustrate their point, they chose a hypothetical calculation involving a 10% depreciation rate on physical capital.
Well, Brad DeLong bit their heads off, writing:
But with an economy-wide capital output ratio of 4-6 and a depreciation rate of 0.1, total depreciation–the gap between NDP and GDP–is not its actual 15% of GDP, but rather 40%-60% of GDP. If the actual depreciation rate were what Krussall and Smith say it is, fully half of our economy would be focused on replacing worn-out capital.
For the entire economy, one picks a depreciation rate of 0.02 or 0.03 or 0.05, rather than 0.10.
I cannot understand how anybody who has ever looked at the NIPA, or thought about what our capital stock is made of, would ever get the idea that the economy-wide depreciation rate δ=0.1.
And if you did think that for an instant, you would then recognize that you have just committed yourself to the belief that NDP is only half of GDP, and nobody thinks that–except Krusall and Smith. Why do they think that? Where did their δ=0.1 estimate come from? Why didn’t they immediately recognize that that deprecation estimate was in error, and correct it?
Now that’s a bit over-the-top, when the main result (i.e. that Piketty’s use of net rather than gross leads to weirdness, and is also inconsistent with the empirical literature) goes through, whether you use 5% or 10%. (See Krussell’s response and Alex Tabarrok too.) Also, it’s not like they picked 7.485%; no, they used 10%, which is a rather nice round number.
For what it’s worth, if you look at the BEA’s estimate of the replacement cost of the total U.S. capital stock (“fixed assets and consumer durable goods)”, in 2012 (latest year available) it was $53.6 trillion (and that’s in current dollars, not price-inflation-adjusted). Well, nominal GDP in 2012 was $16.2 trillion. So the K/Y for 2012 (if these are the numbers to use) was 331%, which is a lot lower than DeLong’s range of 400% – 600% of GDP. (Incidentally, I emailed the BEA and asked what do I look at for estimates of “total US capital stock” and that’s where they pointed me.)
==> In other news, Krugman bit off Roger Pielke Jr.’s head for being both an idiot and evil, when it comes to the EPA power plant regulations and the analysis of emissions reductions more generally. It’s not worth me going over the whole back and forth, but if you follow the links you can get up to speed. Anyway, David R. Henderson was glad to see Krugman finally acting the economist again (and I agree with David, Krugman’s post did a good job explaining tradeoffs and how “carbon intensity” is not merely an engineering concept but also an economic outcome). But I had to clarify in the comments the perfidy involved:
Obviously I would have to recuse myself if I were ever a judge in a trial involving Krugman, but I think you are being too kind here. I agree that Pielke Jr. is probably a little bit confused in the way he’s using “technology,” but some points:
1) When Pielke Jr. refers to a “cap” on Chinese emissions, he doesn’t mean “a limit on the growth.” No, he means a hard ceiling that stops emissions growth immediately.
2) My description might surprise you, because Krugman matter-of-factly asserts that Pielke’s letter was motivated by the Obama Administration EPA power plants rules, and also tells that Pielke “is actually committed to undermining the case for emissions limits any way he can.” But, Krugman just made up both “facts.” If you look at Pielke’s letter, he says in the beginning that he is responding to this earlier FT piece about a Chinese academic who wants an absolute halt in growth of Chinese emissions to kick in in 2016. Also, if Krugman had bothered to check Pielke’s blog, he’d say that Pielke *endorsed* the EPA’s power plant rules on Tuesday.
3) It’s extremely gracious of you to praise Krugman for finally writing like an economist, when he endorses top-down controls (power plant rules, CAFE standards) and talks about “saving the planet” as the policy goal, without tongue in cheek. (And by the way, he’s not just being ironic in referencing leftist environmentalists. In several recent posts, Krugman has non-ironically talked about what needs to be done to “save the planet.’) What happened to enacting policies such that MC = MB?
* * *
None of this is a criticism of you, David; I realize you probably want to praise Krugman when you can, so people trust you when you criticize him. I’m just pointing out that Krugman was particularly slippery in this post, simply inventing positions and attributing them to Pielke, and then he ended it up with this gem: “I guess I should thank Pielke for his intervention, which has helped clarify how we should think both about energy issues and about him.”